Banc One's |Stakeout' Puts Damper on Premier
By ratifying an arrangement with Banc One last week, shareholders of Premier Bancorp may have put a clamp on future capital gains in exchange for a badly needed cash injection.
The so-called stakeout by Banc One Corp. in Columbus will provide $65 million that the Baton Rouge bank needs to stave off a default stemming from nonperforming real estate loans. These soured loans made up a daunting 10.8% of Premier's loan portfolio on June 30.
Bank executives reached the pact in February, and results became apparent even before shareholders voted. "Premier already is perceived as a better place to keep deposits," said Peter Tuz, a banking analyst with Morgan Keegan & Co., Memphis.
But the situation also sends a signal that stakeout agreements provide little more than breathing room for recipient banks and their shareholders, and should not be viewed as investor bonanzas, analysts say.
In addition to collecting two percentage points more than its prime lending rate, Banc One has purchased the right to buy Premier for 125% of book value when an option kicks in in 1995.
George Davies, a securities analyst based in Denver, estimates Banc One easily could end up paying $13.50 a share for Premier if all is going well when the purchase option kicks in. "That's a comfortable double from today's price," he said.
However, a handful of banks are already trading in excess of 150% of their book value. Premier's stock changed hands late Thursday at $6.75 a share, or 102.5% of book value.
The scenario could be even less rosy for shareholders who hope to recover some portion of their investments in Premier, which has tumbled as real estate problems became apparent.
Instant Option Possible
A "material regulatory change" deemed detrimental to Banc One could cause the purchase option to kick in immediately. Based on the current condition of Premier, Banc One could snap up the Louisiana company for roughly $6 a share.
And then there's the clause about Premier's problem assets. Although Banc One could pay up to 125% of Premier's book value, that figure is net of problem assets not offset by loss reserves.
Premier was aggressive in recognizing problem energy and real estate loans two years ago, inspiring confidence that its problems had largely been recognized. But troubles are again on the rise in 1991.
During the first half of the year, loans delinquent less than 90 days increased by 16.4%, or 14.9 million. If the trend continues, Premier could have trouble boosting its stock price above the current level despite the help from Banc One.
PHOTO : Time for Caution